Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

Railway Reform: Toolkit for Improving Rail Sector Performance
7. Administering the Railways
ness units. Therefore, they were managed according to political priorities. This
practice has relegated many of the world’s railways to a serious state of decline.
Common practices that led to this decline include the following strategies for using
the railways to accomplish political outcomes.
• Providing a large-scale source of good jobs to help government reduce national
unemployment
• Creating a captive clientele for poor-quality products and services supplied by
other government enterprises
• Providing below-cost transport services as a public good (passenger services)
or to subsidize production of other government enterprises
• Providing high-level jobs for political appointees, who frequently lacked railway
experience or business qualifications
• Garnering political support from trade unions in exchange for railways adopting
compensation schedules and conditions unrelated to employee performance,
and financially unaffordable for railways
7.2.2 Governance principles for state-owned railways
Railways are state-owned entities in many countries, and as part of state administration,
subject to government decision making and budget processes. The organizational
model selected for state-owned railways affects the degree of government
decision making power, railway organizational independence, and the distribution
of responsibilities between government and the railway entity. Many
countries that are reforming the corporate governance of state-owned enterprises
agree that this complex undertaking should address two major challenges.
• The state should actively exercise ownership functions such as nominating
and electing the board of directors, but refrain from imposing political interference
in company management.
• The state must ensure markets have a level playing field if private sector companies
are competing with state-owned enterprises, and ensure that governments
do not abuse their regulatory or supervisory powers to distort competition.
A common trap is the practice of setting up railways organized as state-owned
companies, but failing to respect essential governance and independence issues.
Typically, governance of state-owned railways companies should face the challenges
described above and address three major institutional changes.
• Develop a new state/railway relationship
• Develop new railway /shareholder rapport
• Build a new culture within the railway organization
Implementing these principles is very challenging. Few examples exist of stateowned
railways fully compliant with the governance principles. Even in developed
countries, where railways are organized clearly as separate, publicly owned
corporations, they are not always arm’s length from politics. As long as public
The World Bank Page 109